4. Conclusion: The Way Forward on Transatlantic Trade Cooperation
US President Trump and European Commission President Juncker agreed a trade truce in July 2018. Since then, however, disagreement has emerged during exploratory talks over what issues to include in future transatlantic trade negotiations. Moreover, while the US has (for now) shelved its threat to impose tariffs on automobiles and automotive parts, President Trump has warned that they could come into play again if the transatlantic trade talks do not display significant momentum.
If the US–EU free-trade talks are to have a real prospect of success, the recommendations set out in this chapter may offer a guide to the way forward. They are drawn from the preceding analysis and the lessons offered by the Chatham House simulation exercise on transatlantic trade talks in an era of protectionism (described in the previous chapter).
The best way forward in the current political and economic environment is a more multifaceted approach aimed at both the transatlantic market and global challenges of common concern.
Whereas policy recommendations put forward elsewhere have tended to focus on specific challenges – such as concrete steps to avoid an escalation of trade tensions between the US and the EU,98 or technical proposals to build out the bilateral economic ties99 – the case made here is that the best way forward in the current political and economic environment is a more multifaceted approach aimed at both the transatlantic market and global challenges of common concern. These recommendations are not intended to be comprehensive; rather the aim is to help establish a framework for strengthening US–EU trade relations.
Fold ‘quick wins’ into a longer-term deal
A successful path might be to ‘think small’ and get rapid results – for instance by focusing on regulatory cooperation in the area of car safety. This would build on the July 2018 trade détente, and set a foundation for negotiating a trade agreement on industrial goods in the longer term. With a parallel-track approach, issues would be resolved according to their individual schedule.
The history of TTIP and the current protectionist tendencies of the Trump administration both suggest that achieving a fully fledged US–EU free-trade agreement on a single track is almost impossible at this point. But given that the US and EU markets are already closely interlinked, and trade barriers are for the most part low, there is no need to rush into formalizing the transatlantic trade relationship from an economic point of view. At the same time, however, securing some quick wins would be politically expedient. While the US administration has an interest in agreeing a US–EU trade deal to showcase President Trump’s deal-making abilities ahead of the US presidential election in 2020, the EU is interested in a swift agreement primarily to forestall the potential imposition of automotive tariffs. More broadly, quick wins in the coming months would create critical momentum for a more ambitious and comprehensive US–EU free-trade agreement in the future.
Apply lessons learned from TTIP
While the logic behind TTIP (in terms of both economic gains and wider strategic benefits) is still valid, future US–EU trade negotiations should not be ‘TTIP 2.0’. This implies not just relaunching TTIP under a different name, but excluding the most controversial issues (such as agriculture or ISDS) that hampered progress on TTIP. In seeking a US–EU trade agreement, a critical balance must be struck between a deal that is narrow enough to be viable but also sufficiently broad to cover ‘substantially all the trade’ in line with WTO rules. Transatlantic trade negotiations should also apply the lessons of TTIP with regard to the negotiating process (particularly concerning transparency and stakeholder engagement). On the EU side, the publication of the draft negotiating mandates at the same time as they were submitted to the member states for approval is an important positive step.
Avoid the risk of further transatlantic division
Transatlantic trade talks will require significant political investment from both sides. But with an ‘America First’ trade policy and a critical political calendar for the EU in the first half of 2019 (in the context of the UK’s intended withdrawal, and the forthcoming elections to the European Parliament), this will be hard to guarantee. If the talks struggle to make progress, the US is likely to act on its threat to impose tariffs on imports of cars and automotive parts from the EU. This would strain the transatlantic relationship severely. Thus, the biggest risk is that the current efforts to further integrate the transatlantic marketplace will backfire. In other words, rather than strengthening transatlantic ties, a futile attempt to negotiate a free-trade agreement would further divide the US and the EU at a time when both sides need to face shared global concerns together.
Adopt a common approach for systemic global trade problems
In addition to focusing on the transatlantic market, the US and the EU should use their trade talks as a forum to discuss ways to set a constructive agenda to address shared concerns regarding the global trading system – such as the need for reform of the WTO, and China’s trade practices. Achieving quick progress on US–EU bilateral trade issues would strengthen any joint efforts on more systemic problems.
The best way to tackle joint concerns arising from China’s global steel overcapacity, the operations of certain state-owned enterprises, or practices related to forced technology transfers and intellectual property theft is for a group of countries to work together – both inside and outside the WTO – to bring about reforms. In particular, the existing cooperation between the EU, Japan and the US should be enhanced. This trilateral cooperation could be the foundation for a ‘big, bold, comprehensive case at the WTO filed by a broad coalition of countries that share the United States’ substantive concerns about China’.100 A broad coalition of countries – even if some are opposed to the Trump administration’s unilateral tactics – offers the best chance to put sufficient pressure on China to change its policies and practices. At the same time, the successful dispute settlement of such a comprehensive case at the WTO would restore confidence in the organization that governs international trade.101
For the EU: adopt a balanced approach to engaging with Trump
In engaging with the Trump administration, the EU needs to speak with one voice. In particular, this means overcoming Franco-German divisions over how best to respond to the current and any future unilateral tariffs imposed by the US. A balanced strategy would be to retaliate in accordance with WTO rules but without escalating the dispute. To increase internal EU cohesion, Germany should also undertake measures to address its structural trade surplus. This is a valid concern that has been raised not only by the Trump administration, but also by the IMF and by other EU member states.
A better strategy for the EU would be to fill the void now left by the US in the global trade arena.
The EU should not bide its time and simply wait out the term of the Trump administration. Such a tactic may prove futile, not least as Trump could be a two-term president. And even if the Democrats do retake the White House in 2020, some of the current protectionist tendencies are likely to linger. A better strategy for the EU would therefore be to fill the void now left by the US in the global trade arena. Already, the EU has recently signed separate trade deals with Canada and Japan, and has opened negotiations with Australia and New Zealand. The EU should also continue to collaborate with partners around the world – including the UK after Brexit – in defence of the multilateral rules-based international trading system.
These recommendations for transatlantic economic cooperation potentially offer a way to end the ‘tug of war’ between the US and the EU, and instead allow both transatlantic partners to better align their goals. This would help to strengthen not only the bilateral trade relationship, but global commerce as well.
98 Münchau, W. (2018), ‘Europe should weigh its response to US tariff threats with care’, Financial Times, 22 July 2018, https://www.ft.com/content/c1911400-8bfa-11e8-b18d-0181731a0340 (accessed 23 Jan. 2019).
99 American Chamber of Commerce to the European Union (2018), A new agenda for transatlantic economic cooperation: Recommendations from the US business community in Europe, November 2018, http://www.amchameu.eu/system/files/position_papers/a_new_agenda_for_transatlantic_cooperation_november18_final.pdf (accessed 23 Jan. 2019).
100 Hillman, J. (2018), ‘Testimony before the U.S.-China Economic and Review Security Commission’, 8 June 2018, https://www.uscc.gov/sites/default/files/Hillman%20Testimony%20US%20China%20Comm%20w%20Appendix%20A.pdf (accessed 20 Nov. 2018).
101 Ibid.